Top bankers may face new crackdown on pay as EU regulator warns banks are using allowances to sidestep bonus cap

Top bankers may face a new crackdown on pay as the European Banking Authority is set to regulate new forms of remuneration amid fears banks are adopting them to sidestep the bonus cap.

The regulator said it was concerned that the growing use of ‘role-based allowances’, which are paid monthly to senior bankers as fixed amounts in addition to their base salary, did not conform to the new European directives.

Under EU rules coming into force next year, bankers’ bonuses will be capped at 100 per cent of salary or twice that if explicit support is obtained at a shareholders’ meeting.

Pay crackdown: The European regulators are concerned banks are circumventing the bonus cap

It means all banks headquartered in the EU will have to limit bonuses to top staff working across the world.

But banks are increasingly topping up their top staff pay with allowances, which are not considered bonuses as they are not linked to performance.

The EBA said these allowances are considered by many institutions as a fixed remuneration, but in fact they are more flexible than salaries as they are paid to a portion of staff, in most cases only for limited periods of time, and can be cancelled under special circumstances.

In a report on remuneration published yesterday, the EBA said it was analysing this ‘emerging practice’ and ‘will set guidance criteria to correctly assign these elements to either variable or fixed remuneration, so as to ensure that these practices do not lead to a circumvention of the newly introduced cap between the variable and fixed component of remuneration'.

A crackdown on allowances would be a blow to banks based in the UK as the percentage of high earners is ‘significantly higher' in Britain than in all other EU countries.

Chancellor George Osborne has taken legal action against the EU bonus cap, arguing that the cap would lead to an increase in fixed pay, which is more difficult to claw back if the bank falls into financial difficulty.